Why Scholastic Shares Tumbled

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of children's publishing company Scholastic (Nasdaq: SCHL  ) fell as much as 21% today, after the company cut its guidance for the fiscal year ending May 31, 2013.

So what: Scholastic lowered its EPS projection sharply from $2.20 to $2.40 to $1.40 to $1.60, and decreased its revenue outlook by about 5%. The company cited lower curriculum product sales in its high-margin Educational Technology and Services segment as school budgets have become focused on teacher training instead of new products, and have delayed purchasing in the face of the fiscal cliff. Scholastic also sees lower sales in its book publishing business, and it took a hit from Superstorm Sandy, which disrupted its annual book fair.

Now what: The key question for investors here is whether these are short-term problems or more structural issues that will be affecting the company permanently. Both book publishing and education are rapidly changing industries, but Scholastic seems to have managed this transition well thus far, putting up solid growth numbers in recent quarters. Today's drop is certainly merited after such as a large cut, but it doesn't seem to be the last chapter in this story. Scholastic will report second-quarter earnings on December 10.

Don't miss Scholastic's next report card. Add the company to your watchlist by clicking right here.


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